Covid-19 outbreak: 3 months moratorium on all loans, says RBI Governor
You might have come across with the news on moratorium law for granting 3 months “Moratorium” on Term Loan and “Deferment of Interest”on Working Capital by banks as announced by Reserve Bank of India.
Reserve Bank of India notification on moratorium law is issued to:
- All Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks).
- All Primary (Urban) Co-operative Banks/State Co-operative Banks/ District Central Co-operative Banks.
- All-India Financial Institutions.
- All Non-Banking Finance Companies (including Housing Finance Companies.
All lending institutions are permitted to grant a “Moratorium” of three months on Term Loan and “Interest Deferment” on Working Capital respectively on all installments falling due between the period from March 1, 2020 and May 31, 2020.
Earlier Reserve Bank of India vide its circular dated 27.03.2020 announced a regulatory package arising due to COVID-19 which is not mandatory in nature. All lending institutions are permitted to grant moratorium and interest deferment to its customers. Therefore decision on granting of moratorium is up to the lending institutions. But Reserve Bank of India vide its email dated 6 April,2020, passed the mandatory instruction to all banks and financial institutions to consider all eligible customer under “moratorium by default”.
Moreover it is to be understood that moratorium is not waiver but merely a deferment. So outstanding dues will accumulate interests during the moratorium period or until you clear the dues. If you takes the benefit of moratorium, you might have to pay even more because your interest will be compounded and you have to pay some extra interest. So it is wise to go ahead and pay your EMIs right now.”Its Devil in Details”.
RBI says:- NBFCs can’t avail of moratorium on their loans from from Banks. NBFCs may get liquidity from banks by buying CPs, bonds with LTRO money. Here LTRO means Long Term Repo Operations.
In line with the RBI circular, the moratorium allows for the following loans to qualify for the relaxation.
- Vehicle loans.
- Personal loans
- Home loans
- Agricultural loans
- Crop loans
- Miscellaneous loans on personal uses like consumer durable loans and education loans.
Case Study- RBI notification dated 27th March, 2020 still putting customers in dilemma.
Moratorium of three months is to be granted on all loan falling due between March 1, 2020 and May 1, 2020as per notification. We have recently seen that many accounts had slipped into NPA on 31st March 2020. Customers are claiming that we do not have to pay till June,2020 as per RBI notification. This interpretation of RBI notification is wrong. Let us understand the concept here. Accounts become NPA due to non-payment of dues for 90 days. In the present case, customer has not paid his dues of 31st December,2019 and after 90 days i.e. on 31st March, 2020 his account become NPA. Reserve Bank of India notification is only for installments falling due between March 1, 2020 and May 1, 2020 and not for dues before 1st March, 2020.
Recently RBI came out with some extra points on 17th April, 2020 in which it has cleared that the 90-day NPA norm shall exclude the moratorium period. If loan account is suppose to slip on 31st March,2020 now it will slip(become NPA) on 31st August, 2020. Because there is exclusion of 60 days, i.e. april and may from the 90-days NPA norm.
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